BuddeBlog

In Australia, a telecommunications Goliath (named Telstra) reigns. He uses his iron fist to protect his territory and suppress invading technologies, so that he can exploit the last drop of profit out of his massive ageing POTS (Plain Old Telephone System) belly.

Goliath beware, David might be slipping through the net. By March 2004, ordinary citizens will be able to walk into Dick Smith or Harvey Norman and buy a device, which can completely replace POTS, for an outlay of around $200-$300.

The advent of ADSL technology gave POTS new life. The old copper wire could be used to deliver broadband Internet (together with all its bright new multimedia services) in parallel with voice services. Goliath made that his own. Goliath has even prepared himself to digest Voice over IP technology (which reduces the cost of telephone calls to next-to-nothing), by raising the cost of line rentals around Australia.

A small start-up company called Unwired, that knows the weaknesses in Goliath’s defences (Unwired is led by Peter Shore, former Telstra executive and one time rival for Dr Switkowski’s top job at Telstra) has a plan to transform Australia into a single WiFi hotspot. Unwired has just launched itself onto the ASX, and is gaining market acceptance and public equity investment that will finance the transformation of its business plan into a reality.

On November 13th, Unwired struck a deal with a shelved ASX listed company named Breathe Group Ltd. In the next few weeks, Unwired will take over Breathe Group Ltd, change its name to Unwired Group Ltd, and use the new vehicle to raise $100 million in capital, sufficient finance to build and market an FWA network that will cover the whole Sydney basin by March 2004. Unwired claimed to have $90 million in commitments from institutional investors at the time it struck the deal.

The network will cost a meagre $32.7 million to build, but will deliver 95% in-building coverage to the Sydney area. That means, it will work inside most buildings, and be able to reach the 30% of households that are outside the range of Telstra ADSL. The technology works with non line-of-site base stations, so a mere 70 base stations will provide coverage to Sydney.

To get connected, a customer needs only a modem with two short antennae (called a Rabbit), a free USB or ethernet port, and some simple instructions. It works with standard operating system, so no additional software is required for PCs or Macs. It delivers broadband Internet at up to 1Mb/s, which is twice the speed of Telstra’s residential ADSL and the same as Optus’ HFC cable. It is independent of any cables, so ‘Rabbit’ can operate and relocate anywhere in the coverage area without notifying the network.

When VoIP technology gains market acceptance (not long now, surely), David will be able to carry all telephone calls, and what role will remain for Goliath. May he RIP!

Will David take over Goliath’s dominion in Australia? Unwired aims to be the second national local loop provider after Telstra. In 2000 and 2001, Unwired spent $109 million in acquiring 3.4GHz spectrum licences to cover the whole of eastern and southern Australia and including Sydney, Melbourne, Brisbane, Adelaide and Perth, which covers 95% of the population. These licences position Unwired to become the second national ‘first-mile’ provider after Telstra.

Unwired has a test FWA-network operating in the Sydney suburbs of Balmain, Pyrmont, Waverton and Wollstonecraft. Customers, who agree to participate in Unwired’s market research, receive the loan of a Rabbit wireless modem and up to 1,000Mb of data download per month, free-of-charge.

For further information, see also:
Unwired Australia Pty Ltd
Breathe Group (archived)
Australia – Wireless Broadband – Overview and Analyses
Australia – Wireless Broadband Projects
Australia – Wireless Communications
Australia – Broadband – Broadband Economy
Australia – New Telcos – Market Analysis 2003
Australia – Broadband – HFC Networks

There will be plenty of activity, and most of it will take place in the broadband arena. Not only will we see the launch of a range on new wireless broadband systems namely in the USA and the Asia Pacific region; we will also see new activities from the incumbents who will be stung into action by these news broadband developments.

The developments in broadband will occur in different areas, and different business plans will need to be developed. Over 10,000 players already exist in the broadband access market, and I expect at least another 100 new players to enter this market each month during 2004. The majority of these BSPs, however, will initially focus on access. There is a pent-up demand of around 500 million customers and those who are able to deliver the right ingredients (1M/2M speed, approximately US$20-50 a month, unlimited usage) will see significant growth. However, the market will continue to be price-driven.

The wholesale models are looking better and will improve further during 2004, with greater opportunities for local loop unbundling, line-sharing and DSL wholesale. The real winners will be the companies that can begin to develop business plans based on new revenue streams from new (value-added) broadband services.

In 2004 more BSPs will start to deliver DSL TV to their customers. Completely new business models will be required for both the telcos and the ISPs, and planning should begin now, to avoid problems such as the ones experienced by the early telcos in the mid-1990s, and the dotcoms a few years later, which led to the collapse of many companies.

It will also be most interesting to see what the incumbents reaction will be to all of this, as they are currently caught between a rock and a hard place. The financial market will place severe limitations on the amount they will allow the company to invest which, in itself, opens up interesting opportunities for local infrastructure providers such as the utilities and others.

Once these players gain a bit more confidence we may finally see the start of consolidation in this market, and some medium-sized ISPs, in particular, may be involved in this process. As a result a whole new dynamic will emerge in the market.

Will Wi-Fi Max arrive, and what sort of impact will it have on CAN developments? Incumbents will have to move into new infrastructure developments in order to remain in charge.

In mature markets, mobile will begin to take a back seat – although the subscriber numbers will grow, revenue won’t, in any case not on these mature markets, and mobile data will continue to play a reasonably small role. However, this sector is highly sensitive to fashion and should provide plenty of opportunity for smaller players who can develop attractive applications.

To date, the incumbents have been very sluggish in this market, experiencing failure after failure (WAP, GPRS, MMS, 1X, etc). A totally new approach is needed to break the market open. This might actually come from Wi-Fi, where a meshed network is beginning to emerge. Soon we will move away from laptop-oriented services, and I anticipate the arrival of a range of new consumer electronic equipment that will be capable of utilising this network.

Permission-based marketing based on profile management is going to make deeper inroads, as companies need time to test these applications and prepare for the boom years, 2005-2008.

And what will be the impact of digital Pay TV, if any? Will companies such as News Limited (Direct TV, BSkyB and Foxtel) be able to disrupt the free-to-air industry and poach valuable advertising dollars into the e-advertising system that it will develop on its digital system?

But before we get to all of that we will have a nice break. I am really looking forward to winding down and enjoying the festive season. Many thanks for your continued business – it is very much appreciated.

I wish you and your loved ones a happy Christmas – and make sure that you hit the ground running in the New Year. Hope to see you on the 28th of January.

From all of us at BuddeComm

Happy New Year.

Paul Budde

We have produced a set of 4 forecasting reports for 2004:
Global – Forecasts – Industry – Developments in 2004
Global – Forecasts – Market – Voice, Data, Broadband in 2004
Global – Forecasts – Industry – Predictions for 2004
Global – Forecasts – Industry – Strategic, Political, Regulatory Developments in 2004

For those of you in Australian there will be a Roundtable on 28th of January in Sydney where we will discuss these issues in more detail. Click here for more details.

May you live in interesting times. While I was in New Zealand a surprise story broke – that Telecom and TelstraClear are engaged in discussions about a possible combined approach towards 3G.

I had questioned from the outset whether TelstraClear was genuine when it announced that it would build a 3G network of its own. This arose out of frustration, since Vodafone refused to give the company a better wholesale deal. Corporate customers are paying mobile rates similar to fixed rates and the margins have been squashed in the process. TelstraClear, therefore, does need better prices in order to be able to resell the Vodafone services.

It was rather gratifying to see Telstra on the receiving end of wholesale frustration for a change – something its Australian wholesale customers have been subject to for many, many years.

So we now have two archrivals cosying up to each other. That actually puts an interesting perspective on several of my previous New Zealand analyses:
TelstraClear’s overall policy is to eventually gobble up Telecom and;
Telecom has totally messed up its mobile business, with Vodafone winning more market share every day.

Let’s start with the first one:

Telstra/Clear’s move towards Telecom is a further indication that the company has serious plans in respect of the incumbent in New Zealand. Telstra’s intentions are clear. It was only a few weeks ago that Dr Ziggy Switkowsky launched his ideas about market harmonisation across the Tasman. He certainly didn’t do this for altruistic reasons – he was attempting to manipulate the political environment to make such a take-over more acceptable.

More surprisingly, however, is the fact that Telecom has obviously responded positively to these advances and the two are now negotiating their first ‘date’. The question is whether Telecom is now mentally prepared to accept the inevitable? Of course, as the company is fully privatised, it could take that position and simply try to screw a fabulous price out of Telstra – to the delight of its shareholders.

However, it may not be quite as easy as that. Look at the failed Qantas bid to take over Air New Zealand, which is in a far worse shape than Telecom. So, unless a complete collapse of the Auckland telephone network occurs, the New Zealand Government will not be in a hurry to accept such a takeover.

However – and here comes the second point – mobile could provide an opening.

Telecom is all over the place, with two different networks, a 3G arrangement with Hutchison and now a possible 3G plan with TeletraClear. And, as mentioned above, it is losing market share on a daily basis. A good clean-up of Telecom’s mobile business is necessary, and perhaps Telstra can do that for them – sell off the mobile arm and, at the same time, negotiate one of the most lucrative mobile resale deals ever signed on this planet.

A far-fetched fantasy? Let’s wait and see. Those who have read my report on the Roundtable I conducted with financial analysts in Sydney a few weeks ago will have noted their observations that a fragmentation of incumbent businesses will take place and this will provide the financial companies with very lucrative merger and acquisition deals. (One of the first of these in our region might well be in the making as I write.)

Paul Budde

As stated by the Economic Commission for Latin America and the Caribbean (ECLAC), economic activity in the region was down by 0.5% in 2002, but GDP for the fourth quarter of 2002 showed just over a 1% improvement. Investment and revenues in the regions telecommunications sector were heavily influenced by these figures. Overall telecom revenues fell from US$73.3 billion in 2001 to US$65 billion in 2002. High-risk aversion by International companies had an impact on all sectors of the Latin American telecommunications market and has slowed regional growth. Currency devaluations in Brazil, Argentina and Venezuela have severely affected the revenues of international companies with many companies being forced into bankruptcy.

The prospects for Latin America appear to be best in broadband access and data services, as companies continue to fill the region’s still largely unmet demand. Voice services continue to dominate revenues in the region with around US$31 billion in the switched voice market compared with US$19 billion in the mobile sector.

Key trends:
Overall telecoms revenues including fixed and mobile services reached US$65 billion in 2002, down from US$73.3 billion in 2001;
Fixed lines of 90 million serve a population of 531 million;
The most significant infrastructure change in Latin America was the number of new undersea fibre networks creating new broadband routes connecting Latin American cities with each other and the US;
The number of Internet users in Latin America is expected to more than double between 2001 and 2003; users reached 33.35 million at the end of 2002 and are anticipated to reach 44 million in 2003;
Internet host computers are growing faster in Latin America than any other region of the world, exceeding 4 million;
South America’s broadband services market is growing at an annual rate of more than 35%, while its Internet services market is growing by more than 40% a year;
E-commerce revenues in Latin America are estimated to have totalled US$5.9 billion in 2001, with an expected increase to US$23 billion in 2003;
Cellular subscriptions in Latin America and the Caribbean rose by around 23% in the year to December 2002 when subscriptions reached 100 million.
Cellular service revenues reached US$19 billion in 2002;
Forecasters predict that Time Division Multiple Access (TDMA) will represent 46% of the market in 2003;
In June 2002, the Americas Global System for Mobiles (GSM) subscribers totalled 4,191,780 with forecasts of a 20.8% market share in 2005;
Prepaid cellular accounted for 68% of the total subscriber base at the close of 2002;
Wireless Internet subscribers grew from 100,000 to 2 million at the end of 2002, with some 50 million Latin Americans expected to use their mobile phones to access the Internet by 2005. Revenues from data, particularly Short Message Service (SMS) are slow and only accounted for around 5% of total mobile revenues in 2002;
Wireless Internet in the region took off in 2001 growing from an estimated 100,000 subscribers to 2 million subscribers at year-end.
Total pay TV subscribers in the region, including cable, Multichannel Multipoint Distribution Systems (MMDS) and Direct Broadcast Satellite (DBS) operations, will increase from 20.8 million at the beginning of 2001 to 34.6 million at the end-2006, representing a compound annual growth rate (CAGR) of 14%;
The combined Caribbean and Latin American market totals over 100 million TV households and around 125million TV sets;
Latin American pay TV operators’ combined revenue will rise to $14.2 billion in 2006;
Cable TV numbers were around 25 million in 2002 and are expected to rise to 35 million by 2010;
DBS will increase its current market share in the Latin American region from 18% to 25% 2000-2006.

Detailed figures and forecasts are contained in a set of four new reports published by BuddeCom

Telecommunications and Information Highways in Latin America – The Andean Countries: (Colombia, Ecuador, Peru, Chile and Bolivia)

Telecommunications and Information Highways in Latin America – The Mercosur Countries (Brazil, Argentina, Paraguay), Suriname, Guyana and Venezuela

Telecommunications and Information Highways in Latin America – Mexico, Central America and the Caribbean (Belize, Honduras, El Salvador, Mexico, Guatemala, Panama,-Costa Rica, Nicaragua, Haiti, Jamaica, Dominican Republic, Caribbean, Puerto Rico)

Telecommunications and Information Highways in Latin America – Latin America Overviews Analysis and Company Profiles

Each country/company is represented by its own chapter, comprehensively covering the key areas of interest including: Key Statistics, Market Overview, Regulatory Environment, Major Players, Infrastructure, Fixed network Services, Public Data, Internet, Broadband, E-services, Wireless Communications, Broadcasting.

Price US$495 each (ex 10% GST – Australian subscribers only)

For full Tables of Content see: 2003 Latin America Reports: Volumes 1 – 4

I would also like to acknowledge the invaluable work done on the report by our head researcher, Latin America Sandra Price.

Available in pdf format from Paul Budde Communication Pty Ltd

I am enough of a realist to recognise that it is useless to try and put the clock back. The reality is that, for a long time to come, incumbents will be the dominant player across the telecoms and media markets. At the same time structural separation is not going to happen over time.

The responsibility for (regional) infrastructure is in the hands of the government. Infrastructure issue relate to economic and social policy and the government shouldn’t burden the industry with this through unwieldy industry service obligations. As I have indicated in my regional infrastructure analysis, this is going to cost billions of dollars a year and I believe governments have no intention whatsoever of even coming close to an investment of this magnitude.

The government leadership is crucial if we are to begin to move towards a knowledge-based society for all. Let’s hope governments accepts their responsibilities and start to begin to generate strategic plans and to start directing money towards infrastructure rather than to a large number of worthwhile causes – which, at best, will have minimal impact on the long-term improvement of telecommunication services in regional and rural areas.